IDEAS & TRENDS

IDEAS & TRENDS; Loan Enforcers Focus on Trade Schools

By JULIE JOHNSON

Published: June 11, 1989

WASHINGTON—
FRUSTRATED by the growing number of people who walk away from the Government-guaranteed loans that helped finance their education, the Bush Administration is concentrating its latest crackdown not on the students or the lenders but on the final recipient of much of the money: profit-making trade schools.

In announcing a mixture of regulations and legislative proposals aimed at schools with default rates above 60 percent, Education Secretary Lauro F. Cavazos reserved special blame for the ''unscrupulous and uncaring institutions out there that are taking advantage of a program designed to help our students.''

Administration officials said that of the $1.8 billion in defaulted loans, about half, $901.8 million, were accumulated by students who attended business and beauty schools that offer training in secretarial skills, cosmetology, computer programming and other trades.

Financial aid administrators estimate that of the $11.5 billion in Federal guaranteed student loans this year, a third or more will go to students enrolled in these institutions. 'High Risk' Education

''I think we have clearly here a scandal of major proportions in the making,'' said Representative Marge Roukema, Republican of New Jersey and a member of the House subcommittee on postsecondary education. ''I think they are preying on students, luring them with false advertising, not revealing qualifications for loans - and then they take the money and run, literally.

''These students, many of whom are minorities, are the victims in real respects, because they are ultimately responsible for the loans without the education,'' she said.

But officials of these schools say they offer vocational training to what they call a ''high risk'' population and give a growing number of high school dropouts a second chance. According to estimates by the trade school industry, 1.3 million students attended more than 3,900 accredited schools in 1987.

''There are some excellent proprietary schools out there,'' Mr. Cavazos said. ''But there are some schools that are not doing a good job, and those are the ones that we are going to go after.''

Among the abusers are schools that seek out welfare recipients, enrolling them in programs costing several thousand dollars, helping them obtain financial aid and then securing payment before the student learns a thing.

Some institutions have gone out of business without completing courses for which students had paid in full. Some schools hire recruiters whose salaries depend on the number of students who enroll regardless of their ability to benefit from the courses or their potential to complete them.

The Education Department's new rules and legislative proposals attempt to confront some of these problems by requiring, for example, that all vocational schools compile and disclose information on program completion and job placement.

But Representative Roukema said the Administration's approach was still ''very minimal.'' She has introduced legislation that would focus on schools with default rates exceeding 20 percent. The bill would also require schools to refund loan money if a student drops out, would require tougher collection efforts by lenders and would limit advertising and recruiting by certain schools.

Robert J. Burrell, director and co-owner of the Kalamazoo Beauty College, said the school, which has been in business for 45 years and costs $3,700 a year for full-time students, serves a largely ''socioeconomically disadvantaged'' population. According to the Education Department, the school has an 89.5 percent default rate - the second highest in the nation. Spreading the Blame

Mr. Burrell said it is unfair to compare his school's default rate, which he said was closer to 59 percent, to that of schools serving a smaller proportion of disadvantaged students. ''Not everyone is academically inclined to go to a four-year university,'' he said. ''And because of the populace we serve it is anticipated that it would be different than for New York University or something.'' (New York University's default rate is 7.8 percent.) The blame for the problem should be more evenly spread among the schools, the Federal Government and the lenders that award the loans, he said.

Charles E. M. Kolb, a Deputy Under Secretary of Education, said that officials recognize there are a number of reasons for defaults and that the Administration will approach each case with ''an element of fairness and due process.''

Even the worst offenders would not be put out of business by the Administration's proposal, which would phase in the toughest penalties and allow for a case-by-case review, but the regulations are expected to reduce those defaults substantially, said Stephen J. Blair, president of the National Association of Trade and Technical Schools, which represents about one-third of the schools.

Mr. Burrell said that some institutions would welcome help in getting their rates down.

''We're not saying we're perfect, but we're not standing here handing out dollar bills,'' he said, referring to the loan money. ''Why are we the only ones ending up with the blame?''

Graph of indicated rate of Federally guaranteed student loans in default among trade schools vs. private and public colleges (Source: Department of Education)